Archipelago Philippines Ferries Corporation

April 22, 2016 BIR RULING NO. 145-16 Section 109 (1) (T) of the 1997 Tax Code, as amended; Revenue Regulations No. 15-2015; BIR Ruling No. 092-2016 Archipelago Philippines Ferries Corporation 5B Unioil Bldg. Commerce Ave. cor. Acacia Ave. Ayala, Alabang Attention: Leo Peter Paul Gonzales President/CEO Atty. Ricky G. Ty Atty. Rexter Tupas Legal Counsels Gentlemen : This refers to your two (2) letters dated March 10, 2014 and December 16, 2014, requesting on behalf of Archipelago Philippines Ferries Corporation , for a Certificate of Value-Added Tax (VAT) Exemption on its importation of three (3) units of passenger vessels, namely, M/V Fast Cat M7, M/V Fast Cat M8 and M/V Fast Cat M9 , pursuant to Section 109 (1) (T) of the National Internal Revenue Code (NIRC) of 1997, as amended. Documents submitted show that Archipelago Philippines Ferries Corporation (TIN: 223-662-279-000) is a domestic corporation registered with the Securities and Exchange Commission (SEC), with Company Registration No. CS200309056; that it is duly accredited by the Maritime Industry Authority (MARINA) to engage in Domestic Shipping Business based on the MARINA Certification No. DSS-2006-003-112 (2015) dated November 6, 2015; and that Archipelago Philippines Ferries Corporation is currently importing three (3) brand new passenger vessels, more particularly described as follows: Vessel's Name Fast Cat M7 Fast Cat M8 Fast Cat M9 Vessel's Type RORO Passenger RORO Passenger RORO Passenger Catamaran Ferry Catamaran Ferry Catamaran Ferry Flag Philippines Philippines Philippines Port of Registry Port of Batangas Port of Batangas Port of Batangas IMO Number 9745407 9745392 9745354 Overall Length 49.79 M 49.79 M 49.79 M Reg. Breadth 17.5 M 17.5 M 17.5 M Reg. Depth 4.20 M 4.20 M 4.20 M Gross Tonnage 704 704 704 Net Tonnage 212 212 212 Main Engines 4 x Yanmar 6AY- 4 x Yanmar 6AY- 4 x Yanmar 6AY- WST 485kW WST 485kW WST 485kW @ 1900rpm @ 1900rpm @ 1900rpm Steering System 1 x RIQ/Kobelt 1 x RIQ/Kobelt 1 x RIQ/Kobelt OED-Custom- OED-Custom- OED-Custom- 1.26-1.35 1.26-1.35 1.26-1.35 Main Gen-Set 1 x Cummins 1 x Cummins 1 x Cummins YP65MXDG YP65MXDG YP65MXDG 55eKw @ 1800rpm 55eKw @ 1800rpm 55eKw @ 1800rpm Harbor Generator 1 x Cummins 1 x Cummins 1 x Cummins YP65MXDG YP65MXDG YP65MXDG 55eKw @1800rpm 55eKw @ 1800rpm 55eKw @ 1800rpm Hull Material High Tensile Steel High Tensile Steel High Tensile Steel Place of Guangdong Guangdong Bonny Marine Expert Building/Shipyard Bonny Fair Heavy Fair Heavy (Zhaoqing) Xi- Industry Ltd. Industry Ltd. jiang Shipyard Classification ABS +A1 HSC, ABS +A1 HSC, ABS +A1 HSC, RO/RO Passenger RO/RO Passenger RO/RO Passenger Ferry, [+] AMS Ferry, [+] AMS Ferry, [+] AMS Philippine Inter- Philippine Inter- Philippine Inter- Island Service Island Service with Island Service with description description with description "Catamaran "Catamaran Ferry, "Catamaran Ferry, Ferry, Maximum Maximum Maximum Significant Wave Significant Wave Significant Wave Height 4m" Height 4m" Height 4m" Builder's Hull APFC-HY-2208 APFC-HY-2207 APFC-HY-2206 Number Keel-Laid Date 10th May 2013 20th April 2013 30th December 2013 Launch Date 15th May 2014 25th May 2014 30th June 2014 that MARINA has approved the importation of the above-described vessels in its three (3) letters dated December 10, 2014 and February 23, 2015; that based on the two (2) Affidavits of Undertaking dated December 16, 2014 and March 10, 2015 executed by the Company's President, Leo Peter Paul K. Gonzales, the subject vessels cannot be manufactured domestically in sufficient quantity and comparable quality and at a reasonable price; and that the same are reasonably needed and will be used exclusively by the company in its transport operations. HESIcT In support of its request for exemption, Archipelago Philippines Ferries Corporation has submitted the following documents: 1. Certified true copies of the SEC Certificate of Registration, Articles of Incorporation and By-Laws; 2. Certified true copies of the MARINA Authority to Import; 3. Certified true copies of the Builder's Certificates; 4. Certificate of Registration with MARINA; 5. BIR Certificate of Registration; and 6. Other documents. In reply, please be informed that Section 109 (1) (T) of the NIRC of 1997, as amended, provides as follows: "Sec. 109. Exempt Transactions . Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax. (T) 1 Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations." Based on the above-cited provision, the importation, among others, of a passenger vessel destined for domestic transport operations shall be exempt from VAT. In relation thereto, Section 4.109-1 (B) (1) (t) of Revenue Regulations (RR) No. 16-2005, as amended by RR No. 15-2015, which implements the above-quoted provision, provides: "SECTION 4.109-1. VAT-Exempt Transactions. xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (t) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; Provided, however, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be subject to the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA." It is noted that M/V Fast Cat M7 , M/V Fast Cat M8 and M/V Fast Cat M9 are all brand new vessels and have been issued by MARINA with the required authority to be imported. Hence, the importation of said vessels by Archipelago Philippines Ferries Corporation is deemed compliant with the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA. Accordingly, the importation by Archipelago Philippines Ferries Corporation of M/V Fast Cat M7 , M/V Fast Cat M8 and M/V Fast Cat M9 shall be exempt from VAT pursuant to Section 109 (1) (T) of the NIRC of 1997, as amended. The VAT exemption, however, shall be subject to the strict compliance of the conditions contained in the letter of approval issued by MARINA for the importation of the above-described vessels. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Renumbered by Republic Act No. 10378.